Can Student Loans be Discharged in Bankruptcy?

Student loan debt is a growing problem in the United States as the cost of higher education and difficulty obtaining employment with a reasonable salary combine to make life difficult for college graduates. As of 2018, American citizens owe over $1.4 trillion dollars in student debt, outpacing the nation’s multi-billion dollar credit card debt. Student loan debt can create a crippling burden for people of all ages, eventually leading to the need to consider bankruptcy as an option for financial relief. There are some things you should know if you are considering filing for bankruptcy in order to discharge your student loans.

Past Student Loan Bankruptcy Law

Laws concerning student loans and bankruptcy are notoriously complicated, with several changes occurring over the past few decades adding to the general confusion. Prior to 1998, students who were experiencing financial difficulty repaying their loans could have their obligations discharged through bankruptcy. The decision was made in order to ensure that those filing for bankruptcy were repaying a portion of their debt. The change in law made it extremely difficult for borrowers to discharge student loan debt because the federal government wanted to reduce the number of debtors walking away from their financial obligations.

Current Discharge Options

It is still possible to discharge student loan debt, but the process is more complicated than discharging other unsecured debts. A borrower who has attempted to make repayments and who has lasting extenuating circumstances that create a hardship may be eligible for student loan discharge. An Adversary Proceedings may be filed, but obtaining a favorable outcome could be difficult, especially if a co-signer is involved. The term “hardship” was not clearly defined and many debtors who attempted to have their student loans discharged were disappointed.

Changes to the Law

The growing student debt problem has increased the call for reform, and it is possible that bankruptcy law will change again. The United States Department of Education recently released a statement that indicated discharging student loans might become easier. That does not guarantee that bankruptcy law will change, but the concern over high default rates leads some to believe that the option for discharge will become possible. Though only 11% of those with student loans actually default, those who find themselves in default often spend years trying to shoulder the massive financial burden associated with returning their loan to good standing as interest mounts.

Adam Law Group

Bankruptcy should be the final option for those who are unable to pay their student loan debt. For those who are struggling to make payments, meeting with a qualified bankruptcy attorney is one way to find out what choices are best for their unique situation. The team at Adam Law Group is here to give you the legal advice you need during this difficult time. Call our office today to schedule an initial appointment to discuss your needs so that we can begin providing you with legal advice.

About Author

Jacksonville bankruptcy lawyer and real estate attorney, Thomas C. Adam performed his undergraduate studies at the University of Maryland at College Park and Florida State University; where he excelled in business and investments, and earned a Bachelor’s of Science degree in Business Administration with a major in Finance. During his time as an undergraduate at Florida State University, Mr. Adam interned for Merrill Lynch Pierce Fenner & Smith in Tallahassee, Florida. After graduation, Mr. Adam joined Merrill Lynch’s Jacksonville, Florida office, where he acquired FINRA Series 7 and 63 licenses.
Mr. Adam earned his Juris Doctor degree from Florida State University College of Law. While in law school, Mr. Adam volunteered as a tax counselor for underprivileged families and was employed as a law clerk for a local insurance defense firm.
Post lawschool, Mr. Adam has focused his practice in bankruptcy, consumer litigation, real estate, and general civil litigation. He has significant experience in personal and business bankruptcies, and commercial and residential real estate transactions and litigation.